Atlantic Packaging Products Ltd. v. Her Majesty the Queen

(Federal Court) (Civil) (By Leave)


Taxation - Income tax - Taxation — Income Tax — Capital property — Whether the principles in Continental Bank ([1998] 2 S.C.R. 358) apply to to a rollover and sale transaction where capital property is exchanged for shares on a rollover basis and the shares are immediately resold, such that a gain on the sale of the shares is a capital gain for the purposes of the Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)) — Principles which appellate courts should apply in interpreting lower court pleadings to identify the issue that was raised in the lower court and to determine whether the issue raised on appeal is a genuinely new issue or a component of an existing issue — Whether the principles that apply in determining whether a new issue has been raised for the purposes of the “large corporation” rules in subsections 165(1.11) and 169(2.1) of the Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)) also apply for the purposes of the common law rule regarding raising new issues on appeal.


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The applicant Atlantic Packaging is a paper products manufacturer. In 2009, it did a rollover of certain assets of its tissue division to 7228392 Canada Inc. in exchange for the latter’s common shares. Atlantic Packaging ultimately sold those common shares to Cascades Canada Inc. When Atlantic Packaging filed its tax return, it reported the gain on the sale of the shares as a capital gain, in reliance of s. 54.2 of the Income Tax Act. The Minister of National Revenue concluded that it could not rely on s. 54.2 to deem the shares to have been capital property.

The Tax Court dismissed Atlantic Packaging’s appeals. It concluded that since the assets transferred by Atlantic Packaging to 7228392 Canada Inc. would make up only 68% of the total assets of its tissue division, the test under s. 54.2 of the Income Tax Act was not met. The Federal Court of Appeal unanimously dismissed the appeals.